This week, the STO market came one step closer to a major milestone after the Boston Security Token Exchange (BSTX) announced plans to withdraw and resubmit its proposed rulebook. In April, the Securities and Exchange Commission (SEC) requested more clarity from the company regarding its operations. Today, the SEC received its data in the form of the amended rulebook.

Importantly, the news demonstrates the tenacity behind the BSTX project. Additionally, it opens the door for potential legal precedents as the trial moves forward. Now, BSTX developers believe they provided the SEC with the in-depth understanding needed for regulators to approve the security token exchange.

Examination Needed – Boston Security Token Exchange

According to company executives, the goal of the resubmission is to give regulators more data and time. Specifically, the SEC continues to evaluate how a regulated national security token exchange could affect the market. Additionally, the SEC needs to amend certain requirements that derive from paper-based settlements that are not necessary when using blockchain technology.

In a recent interview, Lisa Fall, CEO of BSTX said her firm was extremely “grateful to the staff of the SEC” for their continued review of BSTX. She also spoke about the importance of the decision to withdraw and resubmit the application. This go-around includes more details on the inner workings and processes of the platform. Fall explained that this accomplishment would mean a major step forward for the entire security token sector. Specifically, it would open the sector to traditional investment firms.

BSTX Boston Security Token Exchange LLC

Fall touched on BSTX’s ultimate goal to become the first nationally regulated security token in the US. She then stated that she hoped regulators would utilize the current situation to expedite the review of the updated rulebook. Due to the Coronavirus virtually shutting down the global economy, regulators have a unique moment of clarity to review all the data in a timely fashion.

BSTX – Flexibility is Crucial

BSTX develops already introduce multiple modifications to the application since its original filing in 2019. In one instance that took place in February, the company amended the market maker and listings standards sections of the application. This move was meant to bring BSTX in line with other national exchanges such as the New York Stock Exchange. Now,  developers appear to take whatever steps are necessary to bring BSTX to the masses.

Boston Security Token Exchange (BSTX)

Importantly, BSTX is a joint-venture between BOX Digital Markets LLC and Overstock’s subsidiary, tZERO. For its part, BOX provides strategic leadership and regulatory advice. These tasks include interacting with federal regulators and maintaining compliance mechanisms in place.

The technical aspects of the platform will be tZERO‘s responsibility. As such, tZERO developers are responsible for all of the blockchain protocols, smart contract programming, and the execution and settlement protocols. Notably, tZERO is one of the most recognized names in the STO sector.

Boston Security Token Exchange – You See Them Coming

This latest submission to the SEC could be the one that gets BSTX approved. If not, you can bet that the company plans to make whatever changes the SEC requires to bring this innovative platform to the market. For now, the entire cryptocommunity awaits this crucial ruling.

Tokenise International Ltd

While some companies are content servicing a narrow range of the digital securities sector, there are a few players which have their eyes on something greater.  Tokenise is one of these companies, with a stated goal of offering a comprehensive suite of services on a global scale.

Based out of Gibraltar, and licenced within Barbados, Tokenise International already maintains a global presence.  The group is comprised of multiple branches,

• Tokenise.io
  • Licenced broker services
• Tokenise.co.uk
  • Equity Crowdfunding
• Tokenisestock.exchange
  • Global security token exchange

What’s the Problem?

Arguably the biggest missing link in the world of digital securities, is a developed group of exchanges.  To date, the sector is rife with competitors operating as issuance platforms and custodians, yet there remains a notable dearth of options for the actual buying/selling of digital securities.

Furthermore, multiple exchanges are restricted to offering their services within their own nation’s borders.  Very few, if any, truly global solutions exist.

How Will They Solve It? – Tokenise Stock Exchange

By obtaining licensure as a broker, Tokenise.io is ready to be put to work.  With this being the case, the Tokenise Stock Exchange has become the immediate focus of holding company, Tokenise International.

The Tokenise Stock Exchange, formerly known as DAXNET, has just seen its website go live.  Here, investors can begin onboarding, gaining access to a variety of opportunities.

Tokenise Stock Exchange lists the following as a couple of the services they offer at this time.

• Issuance capabilities, facilitating the hosting both IPOs and STOs
• Secondary market support, providing a ‘home’ for established tokens, creating liquidity and accessibility as a result

Beyond supporting the issuance, and trading, of security tokens, Tokenise has imbued a great deal of flexibility into the types of security tokens supported.  These tokens may be structured as/represent anything from equity, debt, dividends, fractional ownership, Funds, and more.

Martin Graham, Group Chairman, touched on why security tokens hold such promise, stating,

“Tokenisation of securities and other real-world assets will transform the accessibility and efficiency of capital markets. Removing inefficiencies, friction and barriers to participation will democratise the process of matching providers and consumers of risk capital. This, in turn, will increase the flow of funds and investment opportunities for market participants.”

Naturally, as this is an exchange supporting security tokens, participation among investors is limited to those which pass the necessary KYC and AML parameters.

Tokenise UK

While the company’s focus may be on Tokenise Stock Exchange, development still continues with Tokenise UK.  With the state of the economy in 2020, many have noted that funding through traditional VC channels has greatly diminished.  As a result, we have seen an increased interest in equity crowdfunding.

While time will tell if equity crowdfunding can sustain and convert this interest into actual participation, Tokenise intends on being ready.  One example of events which can be expected on the platform is the current offering by KABN – an equity token offering looking to raise $8 million USD.

The Team

Behind the various products on offer, by Tokenise International, is an adept team.  The core of this group is comprised of the following five individuals, with each boasting impressive resumes.

Michael Kessler            – CEO & Founder

Martin Graham            – Group Chairman

Simone Murray            – Chief Financial Officer

Simon Kiero-Watson   – Director of Markets

Hirander Misra            – Group Director

What’s Next?

With the onboarding of clients commencing, we reached out to Tokenise Stock Exchange to ask them, ‘What is next?  What is the next marker on the Tokenise roadmap which companies and investors alike can look forward to?’

Michael Kessler, CEO & Founder of Tokenise Stock Exchange, took the time to elaborate on what they offer, and what we can look forward to.  He stated,

“Tokenisation of securities and other real world-assets will transform the accessibility and efficiency of capital markets. By bringing new asset classes across multiple jurisdictions to a global community of investors will enable companies to raise capital more easily and enables greater liquidity to be generated where it was previously illiquid.

In terms of the next steps

1. Enabling of full KYC & AML as well as categorisation of investors
2. We are talking to a number of issuers who want to list on the platform and go through one of our corporate advisers
3. We expect to have the first listings coming through over the coming weeks/months (partly dependant on Covid) that will allow people to list multiple asset classes to suit their requirements, these include:

• New asset classes
• Fractional ownership of physical assets
• Private equity Royalties

As well as traditional assets:

• Equities
• Bonds
• Funds
• Commodities

We are talking to over 20 new companies from securitising influencers and household names, medicinal CBD facilities, property assets, beverage producers, beauty products, fintech businesses etc. Ideally over the coming weeks we will have 3-4 new issuances ready to go through the listing process and join our exchange. We would love new issuers to contact us and for investors to register.”

The Competition

While the market is nowhere near saturated, with regards to security token exchanges, there are a few currently active or in development.  Each of the following holds the potential to be a competitor with what Tokenise has to offer.

• MERJ
• OpenFinance
• Archax

Each of these exchanges vary slightly, in that MERJ serves a global client base, while OFN is restricted to the U.S., and Archax has yet to launch.

The ATS, Public Private Execution Network (PPEX) announced the succesful completion of SEC registration this week. Now, PPEX can offer users the ability to trade exempted digital assets and other private securities from the protections of a regulated platform. The news demonstrates further competition in the sector, as well as, a more responsive approach by SEC regulators to the blockchain space.

PPEX

According to company documentation, the PPEX ATS will offer a wide variety of specialized exempt securities. Exempt securities are attractive to investors for a couple of key reasons. For one, private equity products aren’t subject to the same disclosure and registration requirements as their sec-registered counterparts. In fact, it’s far more cost-effective to invest in exempt securities versus publicly-traded financial instruments.

Importantly, PPEX’s parent company is the broker-dealer North Capital Private Securities. The Salt Lake City-based North Capital Private Securities is a self-clearing broker-dealer. Notably, the firm offers escrow services for offerings under Reg D, Reg A+, Reg S, and Reg CF offerings. As a registered broker-dealer North Capital gained valuable insight into the mark and most importantly, the trust of regulators.

Discussing the project, North Capital CEO, Jim Dowd spoke on the main differences between PPEX and the current systems in place. He described how developers opted for a  “ground-up approach” rather than attempting to modify the current platform. Additionally, Dowd touched on some of the advantages and disadvantages of investing in exempted securities.

CEO of PPEX Parent Company – North Capital, Jim Dowd

Dowd spoke on how exempted securities cost much less than traditional securities. He explained that these savings equate to more opportunities for investors. Also, exempted securities settle in less time than traditional securities. This added flexibility and efficiency continue to help drive more interests in these unique financial instruments.

While the advantages of trading exempted securities are clear, there are also some negatives that come with these investments. Specifically, exempted securities markets are far less liquid than traditional markets. This non-liquidity can leave investors seeking additional exit strategies if their investment doesn’t meet their requirements in the expected time frame. Critically, this non-liquidity is the result of less participation from traditional investment firms.

Lack of Transparency

The main reason that large investment firms hesitate to enter the exempted securities markets is a lack of transparency. Remember, exempted securities have to disclose much less information regarding their company and operations. PPEX hopes to help bridge this gap through the use of blockchain technology.

Patience is Key

Surprisingly, PPEX’s parent company had completed FINRA’s membership application back in February. The platform had the approval to begin operations since the start of March when the SEC formally approved the ATS filing. Interestingly, PPEX decided to remain quiet regarding the accomplishment. This strategy allowed the platform to continue development in a timely manner.

PPEX Details

According to reports, PPEX will function as a sort of hybrid system. The platform will adhere to many of the traditional securities regulations such as due diligence procedures, disclosure requirements, and other regulatory processes. In this way, PPEX will offer investors and regulators more protections than other ATSs currently in the market.

ATS Platforms Continue to Emerge

PPEX promises to deliver investors a unique opportunity to operate in the exempted securities sector with additional protections. The integration of blockchain technology enables platforms, such as this one, to provide users with more security and transparency than ever before. As such, you should expect to see more ATSs enter the market as the STO sector’s expansion reaches new heights in the coming months.